Reykjavik Energy renegotiates terms of 2008 turbine order

Mitsubishi turbine at the Hellisheidi geothermal power plant, Iceland (source: flickr/ ThinkGeoEnergy, creative commons)
Alexander Richter 28 Apr 2014

Reykjavik Energy renegotiates turbine contract with Japanese turbine producer, essentially freeing itself from the obligation for a one-time payment.

In the spring of 2008, Icelandic utility Reykjavik Energy bought five turbines for planned geothermal power plants. At the time, the company had not decided where the turbines would be used.

Two of the turbines are now in Iceland and were used for the Hellisheidi geothermal power plant near Reykjavik. Three of the turbines ordered in 2008 are still in Japan and their value estimated at around $134 million. Since then Reykjavik Energy has been trying to find an agreement with the Japanese turbine producer. Late last year, the companies managed to come to an agreement that includes a delay in delivery of two turbines and the cancellation of delivery of the third remaining turbine with a payment by Reykjavik Energy of around $27 million.

As part of the $27 million, Reykjavik Energy receives spare parts valued at around $3.6 million.

In the early summer of 2008, Reykjavik Energy signed a ISK 25 billion contract for the purchase of five turbines. It is not clear if the Icelandic currency refers to the value of 2008 (which would be around $300 million) or today’s value at $223 million.

Four of the turbines were supposed to be used for planned geothermal plants at Hverahlíd and Bítru that were to provide power to a planned aluminium smelter in Helguvik, Iceland.

Two of the turbines came to Iceland in 2011 and were used in the new 90 MW extension at the Hellisheidi power plant. These two turbines cost $122 million at the time. The remaining three turbines that Reykjavik Energy signed up to buy are valued at $183 million.

The past few years representatives of Reykjavik Energy have had several meetings with representatives from the turbine producer to negotiate changes to the contract. Last year, a delay in confirmation of order of two of the turbines was agreed on for June 1, 2016 and their delivery in 2019, but essentially removing a purchase obligation. The third turbine order was cancelled. The cost of this agreement was around $27 million.

If conditions on the energy market in Iceland change, Reykjavik Energy would be able to purchase the two turbines and the $27 million paid under the current agreement would be deducted from the purchase price.

It can be assumed that the turbine producer is Mitsubishi Heavy Industries, which delivered the two turbines installed at the Hellisheidi plant in 2011.

Reykjavik Energy has since spin out its power and transmission business into a company called Orka Nátúrunnar.

Source: Frettatiminn